Co-operatives make up a large and diverse chunk of the eurozone’s banking system. Changing regulation affects them just as much as other banks, though often in different ways – in some cases leading to calls for the reform of banks’ governance.
Greater separation of retail banking and securities trading units could be particularly complicated for some central institutions of national co-operative networks. Similarly, institutional creditors will not be best pleased if emergency recapitalization procedures are mixed with co-operative ownership rules in such a way that, after a bail-in, they only end up with one vote, despite holding thousands of shares.
Above all, the constant demand for higher capital is a central issue for mutual groups. In Italy, it has pushed the government to reform the sector, with a new law effectively ending one-man-one-vote for the largest co-operatives. The consolidation this is meant to trigger may take longer than expected, partly because the banks are so rooted to their regions.
Some still argue that co-operative banks in France, for example, are under less pressure to pay dividends, so they can build up stronger buffers through retained earnings. A past emphasis on retail banking might also give useful expertise, in these days when so many banks are refocusing on low-cost, mass-market business. Earlier this year, Fitch upgraded the main German co-operative network to AA-, in part citing resilient profitability in an environment of low rates.
But co-operative ownership of some of Europe’s biggest banks is under siege, largely because it is seen as hindering their capacity to raise public equity. Crédit Agricole’s management, for example, has done much good at the bank in recent years. But Berenberg equity research put out a report last month stressing how the bank’s structure, in which the listed entity is both a shareholder and subsidiary of 35 regional co-operatives, causes fundamental difficulties for investors.